Marriage Might Grow More Taxing

JAFFE

When President Clinton was asked last week about how much he owed in taxes, he said that he and First Lady Hilary Rodham Clinton "took a pretty good lick."

To be exact, it was a $4,085 hit -- covered by a check made out to the Internal Revenue Service, the same as anyone else with taxes due -- bringing the first couple's federal income tax bill for 1992 to a grand total of $70,228.

But if Clinton thinks he took a lick this year, imagine how he'll feel a year from now if his own tax proposal becomes law. The so-called "marriage penalty," a glaring inequity in the federal tax code, is going to knock him senseless.

Sadly, Bill won't be the only one knocked out.

That's because Clinton's tax proposal exacerbates the marriage penalty problem. Simply put, an unmarried couple living together and filing taxes as individuals pays significantly less than a married couple with identical income and deductions.

From a social standpoint, the marriage penalty actually discourages two-income families, if not the formation of traditional families altogether.

Under current law, married couples in all but the very lowest tax brackets pay a marriage penalty. Under Clinton's plan, that penalty becomes much larger, particularly for combined incomes of more than $200,000.

Given the current effort to rewrite the tax code, the penalty should be eliminated altogether.

Using certain common assumptions for deductions and the like, the Washington office of Big Six accounting firm Arthur Andersen calculated that a married couple earning $290,000 would pay $9,524 in marriage penalty under the Clinton proposal. That's more than double the $4,533 paid under the present law.

Clinton, whose presidential salary is $200,000, will likely experience an increase of similar size. Hilary is not taking money for her Cabinet position, but income from directors positions and investments should put the Clinton's in the double-penalty neighborhood.

It's not easy to feel sorry for anyone earning that much money, of course, but the fact is that these taxes are something that single people simply don't have to pay, regardless of their level of income. Clinton promised to tax the wealthy, but his proposal assumes that all married people have a little more wealth to give to the government than single people.

It's not the current administration's fault that the penalty exists.

Years ago, what is a penalty originally was designed to be a break, specifically aimed at married men because, in most cases, they were the sole support of a wife and children. Married couples with just one income can still benefit from the law, as compared to unmarried couples, living together and supported by one income.

Over time, as more women entered the work force, married couples with two wage earners were given a $3,000 deduction not available to other filers.

But that advantage disappeared in the last seven years. First, the 1986 tax act eliminated the $3,000 deduction. Other laws phased out exemptions and deductions, increasing the progressive nature of our tax system and putting two-income couples at a disadvantage compared with two single workers.

The number of two-income families has skyrocketed, forcing an growing number of taxpayers to remain -- or become -- single or pay the marriage penalty.

"The law was created in a different time and I'm not sure it still does what it was intended to do," said Stephen Corrick, tax partner for Arthur Andersen's Washington office. "I haven't found anyone who has said `I will stay unmarried for tax reasons,' but I wonder if we should take advantage of people's desire to get married as an excuse to get more money for the government."

These days, the law creates a benefit to being single. Maybe the legislators believe that married couples and single people both have to buy, say, kitchen furniture and that two-income families have an entire extra salary to plunk down on a dinette ... and a tax bill.

One other discrepancy that the Clinton proposal heightens is the way in which the marriage penalty shrinks if one spouse earns significantly more than the other. If, for example, two spouses each earn $125,000, they take a lick to the tune of $7,953, according to Arthur Andersen calculations. But if one earns $238,000 and the other $12,000, the penalty is only $2,709.

The Clinton plan widens that difference. The spouses with equal incomes would pay an $11,024 penalty -- a 39 percent increase -- while the other couple's tax hit would fall 4 percent to $2,603.

Coupled with the benefits that one-income families can still get under the current system,. it creates a disincentive for a second spouse to work.

For people where the principal breadwinner earns sufficient money to live on, there will be some cases where the second spouse's lower-income job could provide little or no return.

You might suspect by now that the marriage penalty gave me a pretty good lick this year too. It didn't. My wife and I didn't exactly lay a crushing blow on the IRS, but we did score one for the good guys this year.

I don't even expect that tax code to be entirely uniform and fair. It can't be, given the needs of the government balanced against the wants of society.

It is reasonable, however, to expect a tax code that is in sync with society and not so completely out of kilter that it punishes the very people it was once meant to help.

If Clinton is serious about "tax fairness," as he promised during the campaign, then he needs to start looking out for himself and the first family. And everyone else's family too.